TÜRK TELEKOMÜNİKASYON A.Ş. INTERIM ACTIVITY REPORT AS OF BASED ON NO:II-14.1 COMMUNIQUÉ OF CAPITAL MARKETS BOARD

Transcription

1 TÜRK TELEKOMÜNİKASYON A.Ş. INTERIM ACTIVITY REPORT AS OF BASED ON NO:II-14.1 COMMUNIQUÉ OF CAPITAL MARKETS BOARD OCTOBER 22, 2014

2 CONTENTS 1. OVERVIEW OF TURK TELEKOM 2. CORPORATE STRUCTURE 3. SIGNIFICANT BOARD RESOLUTIONS 4. PERSONNEL MOVEMENTS 5. FINANCIAL RISK MANAGEMENT 6. MATERIAL ISSUES DURING THE PERIOD 7. MATERIAL ISSUES AFTER THE END OF THE PERIOD 8. SUMMARY FINANCIAL RESULTS

3 1. OVERVIEW OF TÜRK TELEKOM Türk Telekomünikasyon A.Ş. ( Türk Telekom ) with its subsidiaries, provides its customers with complete range of fixed line, mobile, data, and internet services as well as innovative convergence technologies through its extensive fixed-line telecommunications network, which covers almost 100% of the population. Total access lines in service were 13.7 million as of 2013 year end and this number decreased to 13.3 million in the third quarter of Türk Telekom offers wholesale infrastructure services for ISPs besides being broadband internet provider having the widest sales network in Turkey, through its wholly owned subsidiary TTNET. 23% of broadband internet access in Turkey is through fixed broadband as of 2014 second quarter. The remaining 77% is attributable to mobile operators 1. The number of fixed broadband subscribers of Türk Telekom was 7.3 million as of 2013 year end and increased to 7.5 million as of September 30, Türk Telekom, having 89.99% shares of Avea, the third largest mobile operator in Turkey, provides mobile communications services, including traditional and value added voice services, international roaming services, messaging and data services (using SMS, GPRS, EDGE and 3G technologies). Avea has been founded in 2004 as a result of the merger of Aycell and Aria brands. Thanks to its performance, from its foundation to the third quarter of 2014 its subscriber base rose from 4.8 million to 16.2 million. In addition to fixed line and mobile voice and data services, Türk Telekom operates IT consulting services, telecommunications product and software services and education businesses through its wholly owned subsidiaries Innova, Argela and Sebit. Türk Telekom also operates CRM systems, directory services and call centers through its wholly owned subsidiary AssisTT. Finally Türk Telekom International (with their old names respectively Invitel and Pantel), data and wholesale capacity provider, joined to Türk Telekom Group in In addition to these, Türk Telekom has 20% shares of CETEL that holds 76% shares of Albtelecom, incumbent fixed line operator in Albania. Türk Telekom supports various education projects, sports, arts and environmentally sensible activities as part of its social responsibility program. 1 Source:2nd Quarter Sector Report of Turkish Information and Communications Technologies Authority

4 2. CORPORATE STRUCTURE Ownership Structure Class Shareholder Share Capital (TL) Share (%) A Ojer Telekomünikasyon A.Ş. 1,925,000, B T.R. Undersecretariat of Treasury 1,049,999, C T.R. Undersecretariat of Treasury D Free float 525,000, Total 3,500,000, The Türk Telekom Shareholders Agreement and the Articles of Association further state that the Turkish Treasury owns a golden share (Class C share). The golden share is required under the Telephone Law and provides that, in order to protect Turkey s national interests relating to national security and the economy, the Turkish Treasury s positive vote is required for the following matters: a) Any proposed amendments to the Articles of Association; b) The transfer of any of the Company s registered shares (i.e., the Class A shares) which would result in a change in management control; c) The registration of any transfer of the Company s registered shares in the shareholder ledger.as publicly disclosed in the Public Offering Prospectus, the real and legal persons directly or indirectly holding a stake in the Company s share capital are listed below:

5 Subsidiaries and financial investments TÜRK TELEKOMÜNİKASYON A.Ş. %89.99 Flexus Mobil Finans ve Dağıtım A.Ş. Avea İletişim Hizmetleri A.Ş. TTNet A.Ş. %20 Türk Telekom International Group Innova Bilişim Çözümleri A.Ş. Argela Yazılım ve Bilişim Teknolojileri Sanayi ve Ticaret A.Ş. Sebit Eğitim ve Bilgi Teknolojileri A.Ş. AssisTT Rehberlik ve Müşteri Hizmetleri A.Ş. Cetel Telekom İletişim Sanayi ve Ticaret A.Ş. %76 Argela USA, Inc. (USA Sebit LLC (USA) Rehberlik ve Müşteri Hizmetleri A.Ş Albtelecom Sh. A (Albania) Management and Organization Board of Directors Mohammed Hariri Feridun Bilgin Hakam Kanafani Rami Aslan Abdullah Tivnikli Cenk Serdar Mazen Abou Chakra Khaled Biyari Fahri Kasırga İbrahim Eren Yiğit Bulut Chairman of the Board Vice Chairman of the Board CEO - Independent Independent Independent Statutory Audit Board Lütfi Aydın Mehmet Habib Soluk Süleyman Karaman Member of the Statutory Audit Board Member of the Statutory Audit Board Member of the Statutory Audit Board Senior Management Rami Aslan Erkan Akdemir Mehmet Ali Akarca Kaan Aktan Bahattin Aydın Board Member and CEO, Türk Telekom CEO, Avea Chief Corporate Commercial Officer Chief Finance Officer, Acting CEO, TTNET VP of Human Resources

6 Hüseyin Balcı Necdet Mert Başar Kadir Boysan Dr. Nazif Burca Doğan Coşgun Dr. Ramazan Demir Hakan Dursun Fırat Yaman Er Metin Erhan Dehşan Ertürk Abdurrahman Güvenlioğlu Tevfik Fikret Karaman Murat Kırkgöz Orçun Onat Kaan Sümer Dr. Coşkun Şahin Cemil Yıldırım Chief Consumer Sales Officer Chief Consumer Marketing Officer, Fixed Line Chief Bus. Partnerships and Bus. Development Officer, Avea Head of Internal Audit Chief Legal Officer, Avea VP of Regulation, Türk Telekom VP of Strategy and Business Development VP of Business Planning VP of Procurement Chief Marketing Officer, Avea VP of Support Services VP of Field Management, Türk Telekom VP of Finance, Türk Telekom Chief Customer Care Officer, Consumer Business Chief Financial Officer, Avea VP of Technology Chief Administrative Affairs Officer, Avea 3. SIGNIFICANT BOARD RESOLUTIONS Significant Board Resolutions taken during the period are presented under Material Issues During the Period section. 4. PERSONNEL MOVEMENTS Consolidated headcount as of 2013 year end and third quarter of 2014 are 34,478 and 33,910 respectively. 5. FINANCIAL RISK MANAGEMENT Main financial instruments of the Company are forward market transactions, bank loans and cash and short-term deposits. They are being used with the aim of raising funds for the Group s operations and hedging interest rate risk. The risks stemming from these instruments are liquidity risk, foreign exchange risk, interest rate risk, and credit risk. 6. MATERIAL ISSUES DURING THE PERIOD As we have disclosed on July 24, 2014, Standard & Poor's Ratings Services (S&P) concluded its CreditWatch with positive implications and raised its long term foreign currency corporate credit rating of our company to 'BBB-' (investment grade) from 'BB+'. The outlook is negative mirroring that of the sovereign. S&P also raised the rating of our company s long term foreign currency senior unsecured debt rating to 'BBB-' from 'BB+'. The rating assigned by S&P to our company is now one notch above the sovereign rating. Our company already has an investment grade rating (BBB-) from Fitch Ratings. As we have disclosed on September 5, 2014, As a result of an investigation, ICTA has decided that our subsidiary TTNET A.Ş. should pay TL 30,466, TL administrative fine and should refund TL 111,881, to its customers

7 who were churned involuntarily. A provision has been booked regarding the refund in the previous quarters, therefore net income is not expected to be affected. Legal procedure regarding the fine will be determined seperately and announced to public later on. As we have disclosed on September 15, 2014, Our company completed the second phase of integration process designed around sustainable growth strategy with customer oriented approach. This strategy sets Türk Telekom apart from the competition as the Group will be able to effectively offer a "one stop shop" that truly fulfills all the customers' needs and requirements. In the scope of phase two, sales and customer care functions were integrated and new organizational changes were announced while keeping legal entities of Türk Telekom, TTNET and Avea as they are, and in full compliance with the governing legislations. The following positions are established and redefined at TTNET; Chief Consumer Sales Officer in charge of mobile and fixed consumer sales operations, Chief Consumer Customer Care Officer in charge of mobile and fixed consumer customer care services, Chief Corporate Commercial Officer in charge of corporate marketing, corporate sales and corporate customer care functions. In relation to the restructuring; Hüseyin Balcı, in the capacity of TTNET Chief Consumer Sales Officer, will lead all fixed and mobile consumer sales functions. Orçun Onat, in the capacity of TTNET Chief Consumer Customer Care Officer, will lead the management of all fixed and mobile consumer customer care services. Mehmet Ali Akarca, in the capacity of TTNET Chief Corporate Commercial Officer, will lead all fixed and mobile corporate marketing, corporate sales and corporate customer care functions. TTNET General Manager Abdullah Orkun Kaya has resigned; TTNET CFO Kaan Aktan, in addition to his current roles and responsibilities, will assume the roles and responsibilities of the General Manager while the new organizational structure foreseen for TTNET in the overall integration program is being implemented. Şahin Şen has resigned his post as TTNET's Chief Technology Officer. Coşkun Şahin, in addition to Türk Telekom and Avea Technology, Network and Operations organizations which he leads in the capacity of Türk Telekom Technology VP, shall be responsible also for TTNET Technology organization. Cemil Yıldırım, Avea Chief Administrative Affairs Officer, shall report to Türk Telekom Support Services VP. Legal VP Ahmet Bülter has resigned his post and new replacement will be announced shortly. TTNET Chief Consumer Sales Officer Ali Yılmaz has resigned his post. Ali Yılmaz and Ahmet Bülter will continue to serve the Group in advisory capacity.

8 Ramazan Demir shall be appointed as Türk Telekom Regulation VP. 7. MATERIAL ISSUES AFTER THE END OF THE PERIOD As we have disclosed on October 13, 2014, Our Company s Independent Board Member, İbrahim Şahin has resigned from board membership. As we have disclosed on October 21, 2014, As we announced by the regulatory disclosure dated September 5, 2014, Information and Communication Technologies Authority had decided with the resolution dated and number 2014/DK-SDD/389 that our subsidiary TTNET A.Ş. should pay TL 30,466, administrative fine for customers who were churned involuntarily. As a result of the investigation, the fine was paid as TL 22,803, today by benefitting from early payment discount, preserving our litigation rights. It was also decided to open a lawsuit as soon as possible to suspend and cancel the execution of aforementioned decision. 8. SUMMARY FINANCIAL RESULTS Summary Türk Telekom Consolidated Balance Sheet as of 2014 Q3 and 2013YE TL million 2014 Q YE Intangible Assets(*) 4,534 4,585 Tangible Assets and Investment Property 8,016 8,350 Other Assets 4,550 4,246 Cash and equivalents 2,089 1,005 Total Assets 19,189 18,245 Share capital 3,260 3,260 Reserves and retained earnings 2,569 2,178 Interest Bearing Liabilities 8,935 8,334 Provisions for long-term employee benefits Other Liabilities 2,247 2,585 Net Income 1,504 1,303 Total Equity & Liabilities 19,189 18,245 (*) Includes goodwill. Summary Türk Telekom Consolidated Income Statement for the periods of 2014 Q3 and 2013 Q3 TL million 2014 Q Q3 Revenues 3,512 3,365 EBITDA 1,362 1,305 Margin 39% 39% Operating Profit* Margin 25% 26% Profit Before Tax

9 Margin 12% 9% Tax Expense Minorities 8 7 Profit/(Loss) For The Period Margin 9% 7% *Operating profit includes revenues, cost of sales, depreciation and amortization, selling and marketing expenses, administrative expenses, other operating income/(expense), and income/(expense) from investing activities, but excludes financial income/(expenses) presented in other operating income/(expenses) (i.e. FX gain/(loss), interest income /(expenses), and discount income/(expense) on receivables and payables), income on unconsolidated subsidiaries, and minority interest. Reported operating profit on CMB financial statements is different due to reclassification requirements of the POA/CMB since 2013 Q3 financial statements. Further explanations are available on notes 2.1 and 5 on financial statements.